Ten years ago, things were mostly quiet. The crisis was staring us in the face, with a little more than a year before the effects of growing leverage and sloppy credit underwriting would hit in full. But when there is a boom, almost no one wants to spoil the party. Yes a few bears and financial writers may do so, but they get ignored by the broader media, the politicians, the regulators, the bulls, etc.
Photo Credit: Fabio Tinelli Roncalli || Alas, there were so many signs that the avalanche was coming…
It’s not as if there weren’t some hints before this. There were losses from subprime mortgages at HSBC. New Century was bankrupt. Two hedge funds at Bear Stearns, filled with some of the worst exposures to CDOs and subprime lending were wiped out.
And, for those watching the subprime lending markets the losses had been rising since late 2006. I was following it for a firm that was considering doing the “big short” but could not figure out an effective way to do it in a way consistent with the culture and personnel of the firm. We had discussions with a number of investment banks, and it seemed obvious that those on the short side of the trade would eventually win. I even wrote an article on it at RealMoney in November 2006, but it is lost in the bowels of theStreet.com’s file system.
Some of the building blocks of the crisis were evident then:
